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Labor Peace: If Ford Can Do It, Why Can't Gm?

June 28, 1998

News: Analysis & Commentary: DETROIT

LABOR PEACE: IF FORD CAN DO IT, WHY CAN'T GM?

How Ford has achieved labor peace while boosting efficiency

It's shaping up to be another classic battle between General Motors Corp. and the United Auto Workers. Ten days after UAW pickets went up at a Flint (Mich.) stamping plant, production is grinding to a halt at GM factories across North America. The shutdown, which is already costing the auto giant $50 million a day in lost profits, could become far costlier: If it lasts into July, dealers will run short of inventory, and GM could lose even more of its already dwindling market share.

As in most of the 11 previous strikes since 1996--which have cost the auto giant a total of $1.5 billion--GM is ready to hang tough. The company says it has no choice: To get the productivity improvements it so desperately needs, management must eliminate jobs, change work rules, and have the flexibility to send work to outside suppliers--measures that the union vehemently opposes. Says Donald E. Hackworth, vice-president of GM's North American operations car group, "we're trying to close a competitive gap."

But so far, despite the rhetoric, forcing strikes has only produced incremental gains. Even the investors who have gone along with previous strikes are wondering aloud if there isn't a better way to achieve GM's goals. They're looking at rivals--Ford Motor Co. in particular--and seeing that it's possible to get efficiency gains by working closely with the UAW rather than battling on the picket lines.

Admittedly, Ford accomplished much of its downsizing in the mid-1980s. Yet even in those tough times, it began reaching out to the unions to find ways to make the company competitive with the rising tide of Japanese carmakers. Now, UAW Vice-President Ernest Lofton and Ford Chairman Alexander J. Trotman meet for breakfast every other month. The UAW's input is sought at frequent briefings on the most sensitive Ford strategies. "They take us through what they are planning for the next five or six years," says Lofton.

The result: no nasty surprises. So, when Ford closed its venerable Thunderbird factory in Ohio last year and laid off 2,500 workers, there was no public outcry by the union. Ford had let the UAW know about the closing six months in advance, and the UAW worked out a deal to get workers a $45,000 bonus if they transferred to a Kentucky pickup truck plant. "We discuss our problems in advance," says Lofton. "When they commit to something, you can go to the bank on it."

The cozy relationship buys more than labor peace: J.D. Power & Associates Inc. just named three Ford factories as having the highest quality in North America. Moreover, Ford is expected to report record profits of more than $2.2 billion in the second quarter, putting it on the road to outearning far larger GM for the second year in a row. Ford's productivity surpasses GM's--33.3 vehicles per blue-collar worker compared to GM's 27.3--despite GM's shedding of some 64,000 hourly workers since 1992. Hackworth concedes GM trails Ford, but blames it on GM's greater reliance on in-house parts, which makes it harder for GM to trim costs.TWO-YEAR TURNAROUND. Racing mogul Roger Penske has proved that GM workers can come around the way Ford's have. When he bought GM's money-losing Detroit Diesel engine-making business in 1988, he inherited a UAW local with a history of fierce labor conflict. Penske worked painstakingly to rebuild relations by getting the union involved in improving quality and efficiency. Detroit Diesel went from losing $30 million a month under GM to earning profit-sharing checks for its workers in two years. Last year, Detroit Diesel earned $30 million.

Former Chrysler executive Richard Dauch worked a similar turnaround at GM's axle business, which he and an investor group acquired in 1994. It went from losing $250 million in its last five years under GM to making $433 million in operating income over the past three years, and is going public this fall. "An [experienced] workforce can be an invaluable asset in restructuring," says Harley Shaiken, labor professor at the University of California at Berkeley. "But instead of GM's workforce being an ally, it's an adversary."

Part of the problem is GM still needs to cut capacity to match its falling market share--even as the company racks up record profits. That's a hard message to send in the midst of an auto boom. And the big paychecks for GM's top brass don't help. "If they are not competitive," says UAW Vice-President Richard Shoemaker, "how do they justify paying top executives more than $22 million in cash over the past two years, plus an additional $35 million in stock options?"

Given such rancor, some analysts believe that only a radical departure from GM's old ways of doing things can bring positive results for the company. "It's beginning to look like the two sides will need a much more revolutionary approach," says analyst John Casesa of Schroder & Co. "Each individual settlement has some productivity gain, but unless you string these settlements together quickly, you don't get much benefit from them." He suggests sweeping changes to the UAW national agreement with GM: perhaps closing aged plants, building new ones, and giving the UAW the chance to organize them with modern labor agreements, modeled on what GM has at its Saturn division.

Certainly, the settlement of the current strike at two Flint plants won't be the end of GM's labor woes. Stamping plants in Indiana and Ohio and parts plants in Ohio and Michigan could go out later this year. And the planned shutdown of Flint's Buick City plant could prompt further labor unrest there. That might convince more investors that GM's labor wars are producing enough victories.By Bill Vlasic, Keith Naughton, and Kathleen Kerwin in DetroitReturn to top